Good day and thank you for standing by. Welcome to the L.B. Foster First Quarter 2025 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. Please be advised that today's conference is being recorded. I would now like to turn the conference over to your speaker for today, Lisa Durante. Please go ahead.

Thank you, operator. Good morning everyone and welcome to L.B. Foster's first quarter of 2025 earnings call. My name is Lisa Durante, the company's Director of Financial Reporting. Our President and CEO, John Kasel, and our Chief Financial Officer, Bill Thalman, will be presenting our first quarter operating results, market outlook, and business developments this morning. We'll start the call with John providing his perspective on the company's first quarter performance. Bill will then review the company's first quarter financial results. John will provide perspective on market developments and company outlook in his closing comments. We will then open up the session for questions. Today's slide presentation along with our earnings release and financial disclosures were posted on our website this morning and can be accessed on our Investor Relations' page at lbfoster.com. Our comments this morning will follow the slides in the earnings presentation. Some statements we are making are forward-looking and represent our current view of our markets and business today. These forward-looking statements reflect our opinions only as of the date of this presentation and we undertake no obligation to revise or publicly release the results of any revisions to these statements in light of new information, except as required by securities laws. For more detailed risks, uncertainties, and assumptions relating to our forward-looking statements, please see the disclosures in our earnings release and presentation. We'll also discuss non-GAAP financial metrics and encourage you to carefully read our disclosures and reconciliation tables provided within today's earnings release and presentation as you consider these metrics. So, with that, let me turn the call over to John.

Thank you, Lisa, and hello everyone. Thank you for joining us today. I'll start my remarks on Slide 5, focusing on the main factors affecting our first quarter results. As noted in our year-end earnings report in March, we began 2025 on a softer note than last year, with first quarter sales down 21.3% compared to a particularly strong prior year. This decline was entirely in our Rail segment, while infrastructure sales increased by 5% over last year, mainly due to robust demand in our Precast Concrete business. It’s worth pointing out that our Rail business had an exceptionally strong first quarter last year and also entered 2025 with a lower backlog, mainly due to order timing and rail distribution. Rail distribution can be inconsistent, and we have noted quarterly fluctuations in volume in the past based on the timing of major projects. This quarter was also affected by a noticeable slowdown in the release of government funding, which impacted project activity levels with our customers. However, I am pleased to report that we are beginning to see improvements in project funding and bidding levels, as indicated by a 46.9% increase in our rail backlog this quarter. Regarding our results, the decreased sales volume in the Rail segment led to a 69.3% decline in adjusted EBITDA compared to last year. As anticipated, our net debt rose to $79.9 million during the quarter, reflecting the increased working capital needed to support sales growth along with annual incentive and insurance premium payments. Net debt increased by $4.9 million compared to last year, and the gross leverage ratio was at 2.5 times, up from 2.2 times last year. Order rates began to recover in the first quarter, increasing by 39.1% sequentially and 12.6% year-over-year. This resulted in an improved backlog at the end of the quarter of $237.2 million, which was an increase of $51.3 million during the quarter and $15 million compared to last year. The backlog growth was stronger in our more profitable product lines, which is expected to lead to near-term sales growth and profitability expansion year-over-year as early as the second quarter. After Bill covers the financial details for the quarter, I will return with some closing remarks on our backlog trends, market outlook, and our financial guidance for the year. Over to you, Bill.

Thanks, John. I'll begin my comments on Slide 7, covering the consolidated results of the first quarter. As a reminder, the schedules in the appendix provide details on the financial results covered in today's call, including non-GAAP information. As John mentioned in his opening remarks, first quarter results were lower than last year, driven entirely by lower sales volume in the Rail segment. Net sales for the quarter were down 21.3%, with Rail segment sales down 34.6%, driven primarily by weak Rail distribution demand within the Rail Products business unit. Partially offsetting the decline was an increase in infrastructure sales, which were up 5% over last year, due to a 33.7% increase in Precast Concrete sales. Gross profit was down $6 million, with the gross margin down 50 basis points to 20.6%. The decline was driven by lower Rail sales as well as slightly unfavorable mix within the Rail segment. SG&A costs decreased $1.9 million from the prior year due to lower personnel and professional service costs. First quarter adjusted EBITDA was $1.8 million, down $4.1 million versus last year due to the lower margins from the Rail sales decline. Operating cash flow, which was a use of $26.1 million, followed normal seasonal patterns due to increased working capital needs coupled with funding for prior year incentives and annual insurance premiums. We saw favorable trends in orders and backlogs across the business which I'll cover by segment later in the presentation. Slide 8 provides a reminder of the typical seasonality of our business. Sales and EBITDA levels are normally stronger in the second and third quarters, as they represent the primary construction season period for our customers. The growth in our backlog during the first quarter gives us confidence that we will see an improvement in sales volumes across the business in the second quarter. Free cash flow trends follow a pattern of consumption in the first half of the year, funding sales growth leading up to the construction season. This trend reverses in the back half of the year as construction season winds down. I'll highlight that, despite these large swings, average free cash flow for 2023 and 2024 was approximately $31 million excluding the $8 million Union Pacific payments which are now behind us. That's a yield of approximately 15% at our current equity valuation. In summary, the softer first quarter is normal for our business and we expect results for the balance of the year to follow our typical seasonal patterns. Over the next couple of slides, I'll cover our segment performance starting with the Rail segment on slide 9.

First quarter Rail segment sales totaling $54 million were down 34.6% due to an exceptionally strong first quarter last year coupled with the lower order book entering 2025. The sales decline was primarily in the Rail Products business unit, which was down 44.7% due to the decline in rail distribution volume. Technology Services and Solutions sales were also down 41.3% in part due to lower UK sales volumes as we continue to scale back initiatives in this market. On a positive note, Global Friction Management sales were up 11% versus last year as this growth platform continues to perform well. Rail margins of 22.3% were down approximately 20 basis points, driven by the sales volume decline and unfavorable business mix. Rail orders declined 0.6% versus last year, but increased 51.4% sequentially as we enter the stronger demand period for the business. Backlog levels increased 46.9% during the quarter and 6.6% versus last year. The backlog improvement was realized in both Rail products and Global Friction Management, while Technology Services and Solutions backlog declined driven primarily by the UK. Turning to Infrastructure Solutions on slide 10. Net sales increased $2.1 million or 5% due to the strength in our Precast Concrete business, which increased 33.7% over the prior year. Steel products sales were down $5 million or 24.4% due primarily to lower Protective Coatings sales. Gross profit margins were up 40 basis points to 18.6% due to higher volumes within precast and improved margins in steel products due to our portfolio work. Infrastructure orders were very strong at $65.8 million, up $17.2 million or 35.3% over the prior year quarter. Backlog totaling $145.5 million is up $9.3 million over last year including a $12.1 million increase or 51.6% from improving protective coating demand.

I’ll now cover liquidity and leverage metrics on slide 11. Net debt levels increased $4.9 million over the last year to $79.9 million and the gross leverage ratio increased 0.3 times to 2.5 times at quarter end. These movements were largely in line with our expectations. We're in the heavy working capital investment period of the year, which will continue in the second quarter as we fund expected sales growth. Net debt levels should increase modestly during the second quarter, but we expect gross leverage will remain around 2.5 times before declining in the back half of the year. We remain confident in our ability to manage the choppy working capital needs of the business and believe the key drivers of strong sustainable free cash flow remain intact. Our capital allocation priorities are outlined on slide 12. On March 3rd of 2025, our Board authorized a new three-year $40 million stock buyback program that will expire at the end of February 2028. During the first quarter, we repurchased approximately 169,000 shares, representing approximately 1.5% of the shares that are outstanding. This compares to approximately 303,000 shares repurchased in all of 2024. Share repurchases are an important capital allocation priority for us, especially with the improving prospects for cash generation and the attractive equity valuation. We expect to invest capital in our facilities at a rate of approximately 2% of sales with a focus on organic growth initiatives in our growth platforms. We also continue to evaluate tuck-in acquisitions to add product line breadth and geographic coverage to our growth platforms. And finally, we will remain prudent with our leverage and net debt levels with the goal of maintaining leverage between one time and two times over the long-term.

My closing comments will refer to Slides 13 and 14 covering orders, revenues, and backlog by business. The book-to-bill ratio for the trailing 12 months was a favorable 1.04:1 with favorable developments realized in both segments. First quarter order rates improved 12.6% over the prior year, driven by a 35.3% increase in infrastructure orders. Order rates improved 39.1% sequentially with increases realized in both segments, highlighting the improved trend in demand levels across the business. Lastly, the consolidated backlog on Slide 14 reflects an improving trend for both segments with backlog growing during the quarter 46.9% and 17.8% for Rail and Infrastructure respectively. Rail backlog included a $22.8 million increase or 63.4% for rail products driven primarily by improved demand within rail distribution. Compared to last year, consolidated backlog is up $15 million or 6.7% with gains realized in our more profitable product lines. Within Rail, Rail Products and Friction Management backlog are up 21.2% and 71.4% respectively, while the UK backlog within TS&S is down 52.7%. For Infrastructure, precast backlog is up 3.8%. As I mentioned earlier, Protective Coating backlog is up $12 million or 51.6%. We believe these favorable trends will translate into improved results in the second quarter, both in terms of sales volume and margin expansion. Thanks for the time this morning. I'll now hand it back to John for his closing remarks. Back to you, John. Thanks, Bill. Please turn to Slide 16, where I'll begin my closing remarks, covering recent market developments and near-term outlook. While first quarter results were down versus last year, the decline was largely isolated to weakness in rail distribution demand within the Rail Products business unit. This product line benefits from the well-publicized government infrastructure programs which we believe slowed earlier in the year due to uncertainty in the amounts and continuation of federal funding, resulting from Washington's cost-cutting initiatives or the like. As Bill mentioned in his comments, it is important to note that demand levels for rail products began to improve throughout Q1 with orders up sequentially 77.8% and backlog up both sequentially and year-over-year at the end of the quarter. We also are seeing increasing quotation rates from some of our largest customers in Q2, providing us confidence that the demand drivers for rail products are getting back on track. Demand for Friction Management solutions remains robust and ongoing focus on rail safety in North America continues to drive demand for our total track monitoring solutions. Within the Infrastructure segment, demand for our precast concrete products continues to grow with increased orders and backlog year-over-year on top of strong sales growth delivered in the first quarter. We continue to see favorable demand building for our Envirocast precast wall system now being manufactured in Florida, as well as our O&G Protective Coatings business with combined backlogs up $12.1 million or 51.6% year-over-year. The increased backlog coupled with improved profitability mix within the backlog should translate into near-term sales growth and profitability expansion year-over-year as early as the second quarter. We are closely monitoring the status of the government funding programs but remain optimistic that they will move forward as announced given the greater infrastructure need. As mentioned during our last update, our markets are absorbing the threat of tariffs, which primarily is centered around steel. We continue to take steps in this area to protect our supply chains and building flexibility where possible, recognizing the volatile operating environment. In summary, we expect our key end markets will improve in the second quarter as we enter the heavier construction season for our customers. And as you would expect, we will monitor demand drivers as the balance of the year unfolds and focus on what we can control, maximizing the opportunity in front of us. A reminder of our investment thesis can be found on Slide 17. In summary, the four key pillars of value creation remain unchanged. We've repositioned our business portfolio which allows us to focus on investment in our highly profitable growth platforms of Rail Technologies and Precast Concrete. Our capital-light business model drives free cash flow and economic profit generation with longer-term demand growth expected from domestic and infrastructure investment. We continue to employ a disciplined approach to capital allocation to maintain flexibility, while driving shareholder returns. Lastly, we remain confident in our strategic execution and believe we're well-positioned to deliver improved shareholder returns now and into the future. I'll wrap-up today's call by covering our 2025 financial guidance on Slide 19. First quarter results were down from last year's exceptionally strong start but the first quarter is normally slow and we entered the second quarter with a strong backlog, improved profitability mix, and favorable demand drivers in our key end markets. The second quarter results are expected to be substantially better than the first quarter and we expect to realize near-term sales growth and profitability expansion year-over-year as early as the second quarter. As a result, despite the volatile and uncertain macro environment, we are maintaining our 2025 financial guidance as we continue to remain confident in our ability to deliver results within our guidance for the year. As I mentioned earlier, we remain optimistic that previously announced government funding programs for infrastructure investment will remain largely intact, and our 2025 guidance includes this assumption, knowing that we will revisit our guidance as appropriate as these market demand drivers and broader operating conditions become more clear for the balance of the year. Thank you for your time and continuing interest in L.B. Foster. I'll turn it back to the operator now for the Q&A session.

Thank you. And our first question today is coming from the line of Julio Romero of Sidoti. Your line is open.

Great. Thanks. Hey. Good morning, John and Bill. Thanks for taking the questions.

Hello, Julio.

Hey. So I wanted to start on the Rail Technology and Services segment. I appreciate the commentary you gave about the lower year-over-year volume and the impact that had on the first quarter, and how the Rail Products business unit was down year-over-year against the strong prior year quarter in the first quarter. It would seem that the second and third quarter would also be tough comparable. So I was hoping you could talk about how you would have us think about Rail Products volumes sequentially here in the second quarter? And should we expect Rail Products volumes to also be down in the second quarter on a year-over-year basis?

Yes. Thanks, Julio. Thanks for your question today. We're a seasonal construction company, so we're looking for actually a very big Q2 and Q3. This is where we really feel good about maintaining our guidance for the year because we've picked up some nice orders entering Q2 and our supply channel partners are ready to perform. So, contrary to maybe your thoughts, we're looking at a big Q2. Last year wasn't the best Q2 for us, so we're looking to put a number on the board here and show some good activity and profitability as well in Q2. Rail Products will be a big piece of that.

Great. Very encouraging there. It was good to see that backlog growth in Rail here in the quarter. Can you speak to the mix of that backlog growth?

Yes. I've mentioned and Bill did as well. Even though we were down on the Rail Products side, to be clear, it was just the distribution side. A reminder for investors and viewers that a big part of that Rail Distribution business flows through the government, about 82% of it. So that's where we saw a little bit of a pause in the first quarter. But we're seeing that break free now, because the nice thing about the Rail space is they need to replace the rail. They can't let these things just sit there. So that work is beginning to come. Our TTM business, our condition monitoring business is really doing well including the FM business. That's where we're seeing larger profit margins and the opportunity to get some nice growth, not just in the quarter but year-over-year comparison. Bill maybe you could highlight what those numbers were again?

Yes. For the Rail segment, looking at the year-over-year growth in backlog, we saw about 22% growth in Rail products. Friction Management was up about 71% on a year-over-year basis. That again speaks to the improving mix within the backlog. Importantly, we saw a decline in the UK portion of the backlog, which was down about 53% year-over-year. That market has been challenged for quite a while and we've been scaling back our initiatives there. So all these moves give us confidence that we're going to see improving profitability mix on the Rail portfolio. We expect those government programs to remain intact, and that should follow that mix improvement as well.

Very helpful there. And then dovetails into the last question for me, which is just on the friction management piece, the growth in the backlog and the upsales in the quarter here. Just speak to what's working well on that friction management piece and if you're seeing any share gains?

Yes, we're picking up new work, new customers, and new geographies. Our service team has performed extremely well. We're feeling good about our installed base as it relates to lubricators and the amount of consumables entering North America and outside of North America, something we have never seen before. We're feeling very good about that business. Our team leader, Jason Bowlin, is doing a fantastic job, particularly in Canada, managing the relationships in the business. We talk about tariffs and this team is working well managing the ongoing tariff threats. I'm very proud of what that group is doing and our customers are benefiting from a very good product and service.

Very good. I’ll pass it on. And best of luck in the second quarter.

Thanks, Julio.

Thank you. One moment for the next question. The next question will come from the line of Liam Burke.

Good morning, Liam.

Good morning, John. Good morning, Bill. John, typically when – if there's a potential economic or national economic slowdown, the rails tend to see lower traffic volumes but that's when they take advantage of slower volumes and step up CapEx. Are you getting any kind of feel for increased capital expenditures on rail projects?

They don't come on and actually say that but that's exactly what we're seeing. That's where this backlog and the orders that we're seeing come from. This is maintenance and additional capital work. They're not necessarily adding capacity, but they're shoring up and hardening their track system. So that's exactly right.

Great. Thank you. And on pipe coating orders were up. The sales were – were the sales numbers seasonally affected? Or is that just project-based and general lumpiness?

Yes. I mentioned earlier in the year that we talked about the new administration that we were probably going to see this thing break free, and we have. We're very pleased with the order intake. We've hired around 50 people for this business. We're running close to capacity right now and will be at full capacity in the second quarter. So we're seeing a very strong year. In fact, we're looking at multiple years of restoring profitability for that business. Now remember, we have two businesses: we're in-line coater and we also have special coating. Both businesses have very large opportunities ahead of us similar to what we experienced six or seven years ago. So we're feeling very good about the outlook of those businesses. Bill, do you want to add anything?

Yes. The only thing I'd highlight is that the coatings business was down a bit this quarter. We had a large order that we received at the end of the previous fiscal year that burned out in Q1 of last year. So the first quarter was soft in terms of volume, but as John mentioned, we had a 51% increase in backlog based on the order intake level we saw in Q1, and we see that continuing for the rest of the year.

Super. Thank you, John. Thank you, Bill.

Thanks, Julio.

Thank you. One moment for the next question. The next question is coming from the line of Christopher Sakai of Singular Research. Your line is open.

Good morning, Chris.

New orders in infrastructure, what are you seeing there? What's leading to the improvement?

Yeah. We mentioned that Q1 order rates increased by 35%. Precast is just doing extremely well. Our strategy is to continue to double down on what we're doing in precast, with our expansion and growth in new product lines as well as our acquisition, which is not so new anymore, but is approaching three years old. We're seeing excellent penetration in the East Coast and down in the Carolinas. Now with our new operations starting in Florida, we are just pleased with what's happening in our precast business. We're looking for a couple of solid quarters in infrastructure, which is really being led by precast. The Great American Outdoors Act, which funds our original legacy business, remains strong and our order rate related to the legacy precast buildings is good, if not better than last year. Overall, we expect a fantastic year in that business.

Okay, great. Can you talk about potential acquisitions? What are you seeing out there? Is it more challenging in the current market given the talks of tariffs?

It is, but we are mindful of our strategy. We have plenty of organic opportunities and growth that we’re managing. We're hiring people, adding shifts, and bringing in technical and sales staff to make things happen. So, we are not actively looking for acquisitions because we don't need them. What we have in front of us for the year and our guidance is within our capacity to perform. We just need to execute. If smaller tuck-in acquisitions make sense, we're always evaluating those, but it's not a primary focus for us right now, Chris.

Okay, great. Thanks for the answer.

Yes. Thank you.

Thank you. One moment for the next question. The next question is coming from the line of Justin Bergner of Gabelli Funds. Your line is open.

Good morning, Justin.

Good morning, John. Good morning, Bill. A few questions here. You mentioned that weaker mix was a driver of slightly lower gross margins in your Rail segment. But I guess, I didn't necessarily follow that given the pieces you broke out and the strength in the friction side versus the rail products side?

Go ahead Bill, please.

Yeah. The volume impact on Rail products was part of it, just given the cost structure within the overall business. We also had our TTM business, which had a strong start to the year last year. So their volume decline was also a factor. If you look across the entire Rail segment, the largest impact was by far the rail distribution volume. In TTM, we are seeing nice bidding activity, but the decline was more temporary than anything.

Okay. That makes sense. Are you seeing any benefit or impact from higher steel prices in your Rail products business as it relates to dollar or percentage margin?

Good question. Back during the first Trump administration with the tariffs, we benefited because as steel input costs rose, we passed that to the marketplace. We're set up very well to do the same now, and we're seeing the same movement as prices go up. Coming out of COVID, we became very nimble, allowing us to drive market pricing. We are prepared as the tariffs evolve to ensure we can pass those costs and get compensated for them.

Okay. That makes sense as well. In terms of the funding being released, is that comment mainly relevant to the Rail products business as you look at the rest of the year? Are there other businesses?

Yes. Specifically, rail distribution. Behind rail distribution is the transit business, and behind that is government authorities. To put this in perspective, we wouldn't be discussing a down quarter if we had shipped just two or three more trains. That’s how close it is, reflecting the lumpy nature of our construction work. Instead of those two or three trains being in Q1, they are expected to be in Q2. So we'll see that pick up. This is all due to government programs and funding, which was slower to start this year but is changing significantly.

Okay. Thank you. Lastly, could you comment on what you're seeing in April in terms of sales and orders versus the first quarter qualitatively or quantitatively?

I always love questions like that, but no, we don't typically talk about that. I'm not discouraged for where we're at in April. When I closed today, I expressed confidence that we're going to achieve our year-end guidance, mindful of what's happening in April.

Okay. Do you still think the upper half of the guidance is achievable based on our current status?

Yes, Justin, we are aligned with our guidance. We will see where all the chips fall. Our operations are ready to perform, and as work continues and opens up, we are set to deliver.

Okay. Thanks so much.

Thank you.

And this does conclude today's Q&A session. I would like to turn the call back over to John Kasel, CEO for closing remarks. Please go ahead, sir.

Thank you very much. Thank you for joining us today. It's one of these things that you get through the quarter, and you get to the next quarter. That's how myself and the management team look at it, moving forward. Because we have much to do in driving the volumes we anticipate and ensuring we take care of our customers while operating safely and effectively. We're looking to continue this through Q2 and the balance of the year. So, thanks for your time today and we look forward to talking to you after the close of the second quarter. Take care.

Thank you for your participation in today's conference call. You may now disconnect.